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On November 22, 2017, ABW commented on The Climate Change Concern for PepsiCo :

It’s always interesting to hear how incredibly large multinational companies are thinking about their impact on the planet – and it’s refreshing to know that Pepsi not only acknowledges the looming problems, but also is looking to address how they can help. That said, I’m curious if you looked into how Pepsi is thinking about not only helping to mitigate their contribution to global warming but also how they’re going to accommodate the inevitable impact of a warming planet on their supply chain.

Could Pepsi help their suppliers become less water dependent by investing in infrastructure that would make their supplier’s crops less water dependent (and thus less affected by the pending effects of climate change)? Perhaps desalination, robust rain water collection systems, or heat protection to prevent evaporation could help. I would think that Pepsi’s enormity could help to integrate these measures at scale far more easily than any of their individual suppliers could independently. Alternatively, I wonder if Pepsi has considered alternative production locations by either helping to relocate their existing suppliers or switching to different suppliers in locations less likely to face drought conditions. Assuming that Pepsi relies on a variety of crops, perhaps merely helping their suppliers to shuffle the crops they’re growing could help – albeit this would require tremendous amount of trust and coordination!

With an eye toward long-term solutions – and perhaps on a more slightly more controversial note given that multinational brands often face profound backlash when they change their recipes or offerings – I’m curious if it’s time Pepsi head back to the drawing board to reconsider their product mix (or at least those in the pipeline) so as to rely on fewer water- and energy-dependent resources. Given the current backlash on soda (in the developing world, anyway!), it seems like it’s as good of a time as any for Pepsi to seriously reconsider how they’ll feed and hydrate us in the future.

On a less planet-centered note, I wonder if Pepsi has considered how they will absorb or pass on additional costs associated with both the limited availability and raising costs of agricultural raw materials. Have they looked into negotiating with suppliers today in order to both lock in prices and ensure first access to crops? Do they have the margins to be able to absorb these price hikes? Or are we meant to pay more for a Pepsi in the future?

It will be interesting to see how this all plays out!

On November 19, 2017, ABW commented on Nike Tries to Outrun Nationalism :

It’s always interesting how anti-trade measures designed to keep jobs within borders fail to acknowledge the consequences of doing so. As you allude to, replicating Nike’s current operations in the U.S. (with its minimum wage rates, unions, and high capital expenses) would likely decrease the number of Americans actually able to afford Nikes. Alternatively, Nike could rely more heavily on automation, dramatically reducing variable costs and severely cutting their workforce. I’m also curious how the current administration weighs the benefits of increased tax revenue against local job growth since the former seems achievable even under a largely automated system. Either way, I couldn’t agree more that Nike should use its marketing might to speak directly to consumers (and voters) for whom these alternatives would perhaps be deemed undesirable or come as a surprise.

Tangentially related, I wonder if Nike’s considered the impact of a “Made In America” line and whether and to what extent it could (with a strategic ad campaign, anyway) increase willingness to pay. Otherwise, I’m curious how Nike plans to offset the increased costs. Will they pass them on to the consumer? Also, while the shorted production cycle time is of note, I am skeptical that decreasing days to market is of much value for Nike when their marketing strategy is largely celebrity and sport driven, and (as far as I can tell) less reactive to consumer wants than it is the creator of them. It will be interesting to see if this actually results in better sell through rates and fewer markdowns.

One thing you didn’t touch on, but I’m curious about, is the procurement of raw materials. Are all necessary components available within the U.S. (or China, for that matter) or will Nike have to pay tariffs on importing raw materials? I would love to know more about the specifics of the supply chain and how nationalism will affect not just the cost of goods but also the quality. Assuming raw material availability and consistent quality, is it possible that America’s isolationist movement will actually result in even higher margins for Nike as they consider largely automated manufacturing plants in the U.S. such that they avoid tariffs, high transportation costs, and increased labor expenses?

On November 18, 2017, ABW commented on Isolationism, the Antithesis of Innovation :

I had no idea that these major drug companies were collaborating on public health issues! While isolationist movements most definitely jeopardize multinational collaboration like this, the fact that the private sector has been able to enter into joint ventures such as ViiV gives me a lot of hope looking forward as to what’s possible when the private sector looks beyond balance sheets and towards public good.

When I think of how ViiV could overcome the challenges posed by increasing numbers of isolationist movements, I wonder if they’ve considered bypassing borders all together via technology. Would remote collaboration allow these initiatives to continue without the need to actually cross borders or move offshore? Perhaps AI will help to solve for cross-national teams and they would be wise to consider exploring alternative communication and collaboration platforms.

It seems like ViiV is already flexing some of its composite companies’ (enormous!) lobbying muscles, but I wonder if they could do so even more – not only to help influence U.S. policies but also to pressure international governments. Have they considered moving operations (or at least threatening to move operations!) to places with more lenient immigration policies?

On an aside, I am also curious to know if Viiv – and its composite companies – should more publicly acknowledge the work they’re doing together. The pharmaceutical industry in the U.S. gets such a price-gauging bad wrap. Do you think putting a spotlight on this work would not only help to assuage the left who often see “big pharma” in its worst light, but also could help to foster bi-partisan support for their work?

Also: I would love to know more about Alan Blinders’s “Third Industrial Revolution” – I wasn’t familiar with this prior to a quick Google search!

Nestle’s position in the US is both large and interesting (both with regard to water rights and how they’ll respond to climate change), but their footprint is much larger than this – and the consequences much greater. They are the largest bottled water company in the world [1] (operating under dozens of brand names [2]), and while moving operations to wetter climates is possible, I don’t think it solves a few of the underlying problems Nestle is apt to face.

In the U.S., there is quite a bit of controversy over the fees they pay for the rights to access clean water (in some places just hundreds of dollars per year! [3]), especially when they’ve come under fire for pumping water out of places like Michigan during the Flint water crisis and California when locals were forced to adhere to water restrictions during droughts. I would speculate that these rates will exponentially rise as access to clean drinking water become less secure in the U.S. and that Nestle will need to decide whether it makes sense to continue to operate in U.S. under these high rates – and poor press.

Moving more operations overseas, though, is not without consequence. Rather, Nestle has frequently entered developing nations, extracted (and sometimes contaminated) clean drinking sources, and then attempted to sell this bottled water back to locals.[4] The people in these communities, though, had free and clean drinking water previously and do not have the financial means to pay for bottled water (nor do I think they should have to). This has left locals without access to clean drinking water, which, the United Nations recognizes as a human right.[5] This is especially problematic since, as you state, “water demand is expected to exceed sustainable demand by 40% by 2030.” I imagine it’s only a matter of time before the privatization of water – especially in the developing world – comes under serious fire. It will be interesting to see how Nestle responds (perhaps with a robust corporate social responsibility initiative in the communities in which they operate) or if their sheer size in the water market lets them skirt by.

It will also be interesting, as you mention, to see how pricing plays into this. I don’t think most people know how large Nestle’s play in the bottled water market is and the power they have to determine access to drinking water.

[1] https://www.bloomberg.com/news/features/2017-09-21/nestl-makes-billions-bottling-water-it-pays-nearly-nothing-for
[2] https://www.nestle-waters.com/brands/all-brands/all-brands-list?char=A
[3] http://fortune.com/2017/06/01/nestle-michigan-well-bottled-water/
[4] https://newint.org/blog/majority/2011/06/20/africa-water-privatization
[5] http://www.un.org/ga/search/view_doc.asp?symbol=A/RES/64/292

On November 17, 2017, ABW commented on Can Ocado Weather the Disruption of the Grocery Industry? :

Ocado’s delivery system seems incredibly impressive, but I worry about their long-term strategy. While increased efficiency and cost-savings are always a good thing, I’m concerned that this will become a race to the bottom with shrinking margins squeezing them out of business, mostly because this fails to account for the enormous of risk of Amazon (or similar). It seems as if a giant, well-funded, growth-focused player (like Amazon) could enter the UK both without any need to turn profit and with the ample time and resources available to steal market share and push out competitors. Thus, playing the cost-cutting game seems dangerous. Instead, I would think that they should better differentiate themselves and double down on that competitive advantage.

I see monetizing their operational strategy as a really interesting play. I wonder if they should not only be selling their end-to-end solution, but also if they should be utilizing their existing warehouse to handle the outsourced distribution of other companies, similarly to how Amazon distributes the products of third-party players. This would not only give them the opportunity to monetize their system, but also to perhaps better serve their existing customers with a more diverse product mix.

I also wonder if perhaps they should be focused solely on the distribution of perishable goods, which is a space not only less saturated but also dependent on an incredibly efficient supply chain. It appears that they already do this quite well. Ocado was clearly ahead of the curve when it came to online grocery! It will be incredibly interesting to see if they’re able to stay ahead – or at least not fall behind.

On November 17, 2017, ABW commented on Can Macy’s Stay Competitive? :

Brick and mortar retail is at a really interesting crossroad: should they double-down on the in-store experiences that are difficult to replicate online (styling help, the ability to test products – especially cosmetics, etc.), and events like Santa Clause at Christmas or should they try to compete head to head with their e-commerce-first counterparts? And while you address general retail shopping trends well, I wonder if this question warrants more segmentation.

Your suggestion of an omnichannel experience seems right – and you present some interesting ideas around how to increase foot traffic in-store with pick-up incentives, digital integrations, and social experiences – but I wonder if there’s data to support this approach. Perhaps online shoppers are a very different type of consumer and Macy’s should think about serving them differently via a more segmented strategy? Perhaps certain product mixes lend themselves better to brick and mortar than they do retail from either the retailer’s perspective, the consumer’s, or both. Cosmetics comes to mind, namely in whether the rate of returns and the inability to re-sell returned product lends itself better to brick and mortar than homewares, for example.

It would also be interesting to see more information on average basket size, rate of returns, and operational costs both in-store and online, broken down by price point, brand, category, and location to see if any obvious trends emerge. If an integrated approach to retail, such as you suggested, is preferred, they would also be keen to consider the Bonobo’s approach: small footprint retail locations where one can browse and try on styles with the help of staff, via which your chosen purchases are then shipped directly to the consumer thereby avoiding inventory holding costs in multiple locations, reducing real estate costs, and increasing the number of available touch points and locations without taking on extraordinary capital expenses.

It will be very interesting to see how retail in general, and Macy’s specifically, transforms over the next decade. I’m looking forward to more conversations about this!